Wrightson ICAP: Powell Continues To Play For Time On Taper

Wrightson ICAP saw Powell "continu[ing] to play for time on the tapering timeline" at the July meeting.

• "Powell did a little tap-dancing when asked whether the Fed would be willing to consider raising rates before it had finished tapering. Somewhat to our surprise, he did not offer a flat 'no' in response... The fact that Chair Powell is willing to suggest that the FOMC might just truncate its purchases on short notice if necessary indicates that the FOMC as a whole does not see its balance-sheet schedule as a constraint on future rate policy decisions."
• On the conversion of the primary dealer repo facility to a "new" repo facility that expands access to some depository institutions as well starting Oct 1, Wrightson ICAP isn't "sure how relevant the expansion to depository institutions will prove to be…Most domestic banks are likely to have more than enough reserves to meet liquidity needs in the foreseeable future, which would make this just a formality for most. Moreover, there are likely to be discussions over the coming year about the possibility of expanding access in other directions."
• Future action: Possible taper start at the Nov FOMC (at the absolute earliest). FOMC to "actively" debate MBS vs Tsy taper (Powell noted little interest in earlier MBS taper, but some interest in faster MBS vs Tsy taper).